Frack tax proposed

Wednesday

Jan 22, 2014 at 4:00 AM

By Marc Kovac Dix Capital Bureau

COLUMBUS -- Increased taxes on oil and gas produced in eastern Ohio's emerging shale oilfields would go to local governments, conservation efforts and a long-term fund to cover future job training efforts, under legislation offered by one state lawmaker.

Rep. Bob Hagan (D-Youngstown), a frequent critic of the way Gov. John Kasich and the GOP-controlled legislature have handled the regulation of horizontal hydraulic fracturing and oil and gas production waste, offered his own severance tax proposal, HB 212, to counter plans being pursued by the governor and House Republicans.

"... It is clear that Ohio needs to update its severance tax rate to ensure that our precious natural resources are not extracted without the appropriate compensation seen in other states," Hagan told members of the Ohio House's agriculture committee Tuesday, where the bill had a first hearing. "The influx of oil and gas drilling in Ohio's eastern counties is significantly impacting the roads, bridges and environment of the affected communities, and it is critical that we protect them from having to bear these costs brought on by the oil and gas industry on their own."

The legislation would increase the state's severance tax rate to 7.5 percent for oil and gas produce via fracking. That's up from about 20 cents per barrel paid now, Hagan said.

The bill proposes directing 5 percent of the total to local governments, with counties in eastern Ohio shale areas receiving more.

Another 1.5 percent would be used for regulatory efforts, including hiring more inspectors and capping orphan wells.

And the remaining 1 percent would be set aside in a Severance Tax Trust Fund that could not be tapped until 2020, when investment earnings could be used for job training and related efforts.

"Instead of gifting yet another tax break to the wealthy, we should focus on restoring the resources to local governments so they can provide basic services to their citizens," Hagan said. "HB 212 is a balanced, reasonable approach to leveraging our state's natural resources in order to assist our local governments, ensure the integrity of the environment is not threatened by oil and gas activity and invest in the future economy of our shale region."

Hagan's bill is not supported by House Republicans, who are moving their own severance tax package in a different committee.

That legislation, HB 375, would set lower tax rates on existing conventional wells and increasing rates on those drilled horizontally, with excess proceeds devoted to plugging abandoned wells and potentially cutting income tax rates.

HB 375 has the support of industry groups.

Marc Kovac is the Dix Capital Bureau Chief. Email him at mkovac@dixcom.com or on Twitter at OhioCapitalBlog.